BREXIT IN A WORLD THAT DOES NOT CHANGE

I have not rushed into the post-Brexit debate, it needed a period of reflection. I did, however, go into the Referendum with the viewpoint that the most impacted upon place was not going to be within the United Kingdom itself but rural Ireland.

One imagines that in the end the UK will muddle through. Its farming industry will face yet unquantified consequences but its saving grace is that it has a massive home market [relative to its own food production capacity] and that offers direct marketing safety valves. Would I like to be a large-scale, non-environmental-zone located commodity producer? No not at all as it is they that will be sacrificed by the UK’s right-wing, free-market governments on the alter of providing lowest-cost food to a predominately urban population. Current market conditions across a whole range of commodities only provide harbingers of what lies ahead for those who are not able to cosy up to the consumer. From a market-positioning perspective, farming and food is now entering a new era; get local or get steam-rollered by the  truly large-scale agri-food nations of the World.

Irish farmers, in contrast, do not have the luxury of a large domestic market. Getting local is just so much more difficult for anyone who has sales aspirations beyond micro, niche and artisan. Simply Ireland’s home market is too small. That said, and conversely, Ireland still maintains the farm-scale more typical of suppliers to niche-markets. Small needs premium prices, and especially so when small is so small [on global terms] that cost efficiencies are never going to lead to financial sustainability. Well not in a world where one fully costs the costs of production! That Ireland is a low-cost producer is an illusion that has been fostered for far too long and it is a particular pigeon that will now only come home to roost that much faster with Brexit.

I wrote an article a while ago entitled ‘Moving from Globalisation to Localisation’, it is an even more relevant idea now. Many of Ireland’s farms need to be the foundation stones of supply-chains that produce premium products [as recognized and paid for by the consumer] and deliver a premium-price-linked reward to the farmer. That was the case pre-Brexit and it remains the case post-Brexit.

It was interesting to  note Prof Keith Woodford [Lincoln, NZ] saying only a few days ago that New Zealand is eight years behind where it should be in terms of making a transition into higher-value products. I would say at least the same for Ireland. Is it coincidental that eight years ago correlates with the timing of the Chinese melamine scandal and the growth in the Chinese market? Probably, as it was the trigger for a massive over-investment globally in terms of dairy commodities, the subsequent bubble and its later deflation [the demand-side reasons for the burst are well known, China, Russia, oil price falls…]. Sadly chasing a bubble that was already floating off into the distance has meant that Ireland ignored its earlier food strategies that recommended moving away from seasonality and into products. It is a strategic error that Brexit will now only compound.

Increased global market exposure from the possible TTIP and Mercosur trade agreements is now frequently discussed. As these are being negotiated by the EU can one assume that the UK will no longer be party to them? Ireland as an EU member can have some influence on their formation but just how much influence can Ireland have on trade agreements between the UK and the same trading groups [and trade agreements will be on the UK’s agenda]? Will the UK now be more nimble and able to establish and adopt trade agreements faster than the EU; thus accelerating the potential consequences of TTIP and Mercosur. If the UK is governed by those influenced by free-trade idealists one cannot see Ireland benefiting. Surely it will soon be greatly exposed to competition from the major producers / exporters for its existing UK market? And even if such a position does not eventually emerge, it should prepare for the worst case scenario.

In the light of difficul trade scenarios is a commodities-as-usual policy going to work for Ireland? The author cannot see how but that is a viewpoint that does not seem to be shared by others. Or is it a case that ‘commodities will not work for Irish farmers’ is the slowest falling penny in history?

And rumour has it that Vladimir Putin is pushing forward Russian agricultural and food investment with a national self-sufficiency target of 2020 in mind [is this now a motive behind continued trade embargos?]. Hence, do not expect Russia to come to the rescue of global markets anytime soon. Russia is also not just thinking dairy, it will be thinking beef. Ditto for others in Eastern Europe.

We have so often heard about the demands from global population growth over the next 30+ years but we appear to choose to ignore supply-side reactions and the potential that there is around the World for higher food production when the investment capital flows. The author has been involved with capital and agri-food investments over the years and one can rest assured, capital does not flow into small investments; its own overhead costs means it wants to go big and that means large-scale commodity production. A point that begs the question; does Ireland have the capital or scale to compete with major commodity-focused investments? It is a question that we should all know the answer to.

One would like to think that Irish food has a reputation and standing within the UK market that would offer some defence against greater international competition. Sadly it does not [something that should be seen as a major marketing failure]. Ireland has Kerrygold butter but where does that stand against the likes of Denmark’s Lurpak in the UK market? Is Pilgrim’s Choice really Irish; the UK consumer could be forgiven for asking the question? And where is New Zealand going to be in the mix; it does have historic ties with the UK market place. Where is Irish beef to be found in the UK? As I have long since said, in mince, meatballs and burgers and in the basic and budget ranges. There will be no clamour for Irish beef post-Brexit, just why should there be? The UK had strong historical links with South America when it comes to beef…. A wake-up call is needed in Ireland and fast.

To be frank, Ireland is facing Brexit and potentially major disruption to its number one export market with virtually no UK-consumer-supported food products to ‘defend’ itself with. Kerrygold and a handful of family-run farming/food businesses with products like Cashel Blue carry the green, white and orange for Ireland in the UK market. Near invisible is the best way to describe Ireland as a food supplier to the UK market. For those who wish to walk the aisles of the UK supermarket they will see this for themselves. And if you do so venture forth be prepared for a shocking enlightenment.

Also one should note that it is not just about market access. It is not just about ensuring further UK market access via the establishment of new trade agreements with the UK. Ireland has had access for years and just how much financial benefit in terms of farm incomes has that created for Ireland’s farmers? It has to be about ensuring market access AND selling products that have characteristics that enhance the price and, ultimately, the market-derived returns to the farmer.

So just what are the unique selling points for Irish foods? What are the USP’s which will convince the UK consumer that Ireland has food products that they MUST have? Products that they will demand over and above others from countries that a newly trade liberated UK food industry can access tariff free?

There is talk of grass-fed but to what degree is it grass-fed, how is it verified and how is this communicated to the willing-to-pay-a-premium-for-it consumer? What is the provenance of its feeds? Is it produced on family farms? Is it traded fairly? Is it produced in a green and eco-friendly way? Is it, is it, is it? Simply Ireland’s USP’s are well hidden and so long as it is about producing commodities because ‘commodities is what we do’, they will remain so. And Irish farmers, with their small-scale production units will continue, as of now, to produce high-quality raw materials for a supply-chain that sells commodities. And as of now, those within the supply chain will reap the rewards whilst the farmer will still carry most of the capital cost, the risk and provide the management and labour. In return the farmer will be left to  scratch around in the dirt for whatever crumbs just happen to be left. And as of now, too often there will be none.

So does Brexit matter to Irish farming? Yes it does, very much so, but to address its implications Irish farming needs to first extract itself from the group-think in its ‘upper’ echelons that has placed a stranglehold upon its ability to change and to transform itself into a truly market-led, responsive-to-the-consumer, World-class farming industry. This is, nonetheless, nothing new, as a reluctance to identify a need to change has existed for years and every new crisis that arrives is left to ratchet up the pressure on the farming community yet further. Brexit is just another market-linked crisis that appears to be being met again with intransigence. It does not bode well for Irish farmers. Major change is needed but it was needed before Brexit. Let us just hope that Brexit does finally focus minds on recognizing that change has to happen, pretending otherwise is just not an option.

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